Congress’ Economic Resolution A Shift From Its Past Vision, Says Praveen Chakravarty

In Bloomberg Quint, Economy by Praveen ChakravartyLeave a Comment


The Indian National Congress’ economic resolution, released at its plenary session over the weekend, acknowledged that the private sector will have critical role to play in fixing the economy. At the same time, it talks of a viable efficient public sector.

According to the party’s data analytics head Praveen Chakravarty, this is a marked difference from the past vision of the Congress. “There is an acknowledgement that the private sector is critical. In the paragraph which refers to mounting unemployment, it clearly says that good productive jobs in large numbers can be created by the private sector,” Chakravarty said in an interview to BloombergQuint. “That does not mean that we are calling for dismantling the public sector,” he added.

There is an entire paragraph on public sector that calls for a viable, efficient public sector in specific sectors and industries. That’s perhaps a change from the past.
Praveen Chakravarty, Data Analytics Head, Congress
Chakravarty said that the debate around the size of the public and private sectors is “far more nuanced” than it is usually made out to be. He added that there are some sectors where private firms do better. But if a public firm is doing well and is preferred by the consumer, does it still mean that the public sector should be shrinking, he questioned.

These are very nuanced discussions and debate. That’s what I said. This is not a very specific ‘will you privatise Air India’ kind of a document. It is about throwing all of these out and saying let’s discuss.
Praveen Chakravarty, Data Analytics Head, Congress
Chakravarty added that the Congress’ resolution shouldn’t be seen as a manifesto of what the party would do if it comes to power. Instead, it is to introspect, take stock and set out broad themes of how policy should be shaped to address challenges facing the Indian economy.

Here are edited excerpts from the interview.

What’s New?

What is the Congress’s economic resolution meant to communicate to the voters of India? How different is the Congress position on the economy and economic policy?

This document is not a manifesto. Does this talk about specific policy measures or what the Congress will do when it comes to power? That is the role of manifesto and not of a resolution. The economic resolution was an opportunity to step back, introspect, take stock and set out broad themes and vision for how the economic policy should be for the challenges that the country faces today. That’s how this should be viewed. This is not about very specific policy issues.

We highlighted 4 big challenges. The first was of jobs and unemployment. We can discuss in detail what the reasons are, but it is a very big challenge. The second big challenge is inequality. It is not unique to India, it is global phenomena but something we should take note and cognizance of it. The third is farm to non-farm transitions. We keep talking about agricultural distress. How do we take care of hundreds and millions of workers from the agricultural sector who will be migrating to cities looking for jobs? The transition from farm to non-farm can be extremely complex and volatile. The fourth is the role of the state in social security, health and education. We are very clear that the state has very big role to play in these sectors which are health, education and providing a safety net to those that are left out and need them.

Also Read: Promising Policy Discontinuity In Congress’ Economic Resolution

The resolution speaks of India’s private sector playing a critical role in the economy, and of creating wealth. Do you believe that your usage of this words in this document suggests a marked difference in the way you view the economy, private sector and wealth creation in the country?

There is an acknowledgement that the private sector is critical. In the paragraph which refers to mounting unemployment, it clearly says that good productive jobs in large numbers can be created by the private sector. It is certainly an acknowledgment that the private sector is very critical because if we do acknowledge that the jobs are our number one challenge, then we are also saying that good productive jobs can be created at large numbers by the private sector. That does not mean that we are calling for dismantling the public sector. There is an entire paragraph on public sector that calls for viable, an efficient public sector in specific sectors and industries. That’s perhaps, a change from the past. And I am saying this fully knowing that I am only one month old in the Congress party.

Smaller Public Sector?

You have suggested that state ownership in some critical sectors, such as defence, mass transportation, natural resources and financial services, is justified. Is that a status quo-ist way of looking at world of PSUs.

No, I think that’s taking an extreme view. There are two ways about dealing with private sector and public sector. You can take the view that these are mutually exclusive to each other. Only one can exist and other cannot. Or you could take that view that there are certain sectors where both can exist and if the private sector is truly efficient it will naturally outperform the public sector.

Globally, there is recognition that there are certain sectors where business, with its focus on maximising shareholder value, may not be the perfect way in setting up a business structure, such as airlines. Airlines is one sector where the private sector find it extremely hard globally to run a profitable airline sustainably. Does that mean that the state has a role? These are very nuanced discussions and debate. That’s what I said. This is not a very specific like will you privatise Air India kind of a document. It is about throwing all of these out and saying let’s discuss. We do acknowledge that private sector is critical.

Does your party view a smaller public sector as a priority in the next five years?

In sectors where the private sector does a good job, it is natural that the public sector will shrink.

Will it shrink through action by the government or shrink organically over the years? If you make government will it envisage getting out of some businesses altogether?

On banking, I personally think, it is naive to categorise the NPA issue as one of PSUs versus the private sector banks. There are clearly inefficiencies in PSU banks and the way they function.

It is unclear to me that should the private sector banks indulge in corporate loans and lending as much to the scale of public sector that their NPAs will be any different. There is no empirical evidence for it. We want to be very careful. We shouldn’t trivialise these down to private versus public.

Private sector is very important. If your question is, should there be public sector banks, then I don’t think there is a yes or no answer right now. I think it has to evolve. I believe that you can’t make an answer and then go into policy making. You should let the market evolve. Should you make conditions easier for the private sector banks to expand, yes. Would that mean that the public-sector banks will lose market share, perhaps.

Is the Congress party committed to a smaller public sector, less government in the business of business?

It is naive question because if it shouldn’t start with what the size of the public sector should be or the size of the state be. Today there is a piece by an economist Daron Acemoglu of MIT Economics, that says that why are we fussing so much about the size of the state.

Let’s say there is an efficient public sector and consumer prefers that over the private sector. Should we then say no? That should not be the case just because the ownership is with the public sector. I am merely saying that let’s acknowledge that this is a far more nuanced debate then just private versus public.

Where Are The Jobs?

The resolution states the bulk of job creation will only be done by the private sector. So you aren’t making an ambitious statement regarding the government being able to create jobs?

Yes and the numbers are clear. For example, it takes Rs 10 lakh for a steel manufacturing company to create one job. In the same amount, an auto manufacturer creates three jobs.

On the flip-side, the textile and apparel sector creates 240 new jobs including 80 for women, and the leather and footwear sector creates 70 new jobs with the same amount of Rs 10 lakh. This is all from the economic survey data. It is very clear where the jobs are coming from. We don’t need to sit and decide while the market is telling us where the jobs are coming from. So, then should we have policies that foster job creation in these sectors by acknowledging and accepting what the market is saying?

What will those policies be?

I am not saying that we should have sector specific policies. But if we do acknowledge that perhaps steel manufacturing is not creating as many jobs as textiles and apparels, then there could be a whole slew of issues which affect the textiles and apparel sector.

Policies like demonetisation impact the textiles and apparel sector far more than the steel manufacturing sector. So, there is no wonder that we don’t have jobs in this country. It is very clear to acknowledge that jobs will be created in private sector. Even within private sector there are huge sectoral differences and hence we have to be cognizant for it before we indulge in policy making of jobs.

But there have to be some new ideas you bring to the table?

I can promise you that there will be a brand new manifesto that will be written and given to voters before the elections.

So there is no way to determine how you hope to enhance the pace of job creation?

Let’s acknowledge that jobs as an issue. Some facade research is still saying that 70 lakhs new jobs are being created and we are the fastest growing formal job creator. Clearly we need to acknowledge that there is a problem, which is very important for the government to understand.

If you were in power, that’s what you would have done too. You would’ve hidden behind some number which would have projected better performance.

Mr. Chidambaram was very categorical in his speech yesterday wherein he said that we did not create jobs as we should have but we did create (some) jobs. So, I think it was very categorical. There were categorical admissions. They were categorical in saying that they made mistakes, perhaps in last two years of UPA too and we have not created jobs as we could have. So, there was a very clear admission there.

Poverty Alleviation Fund?

An article in DNA newspaper suggests that Congress President Rahul Gandhi said that if his party came to power in the 2019 general elections it would set up a National Poverty Alleviation Fund and impose a 5 percent cess on the incomes of one percent richest Indians.

I don’t think the Congress President said that. They may be referring to the agricultural resolution. The economic resolution does not have any mention of it. To the extent that I have been involved in discussions on the economic resolution, this did not come up. I don’t know what they have discussed in agriculture resolution.

So this concept of imposing 5 percent cess on the richest Indians does not exist?

No, not in the economic resolution for sure.

Is this something that could become core to your economic strategy?

I don’t know. It is so premature, because we don’t put out policy specific details, one or four years before an election. We do that few months before we go to polls. This is to step back and say what are the problems, let’s introspect, what we need to do going forward. We asked for an 18 percent GST tax slab, but that doesn’t mean that it will be the exact tax slab.

You mentioned inequality – how will you fix it?

It was not storytelling, to tell something new to people. It could be very well known, but it is important for the party to put it in a resolution. If inequality and lack of jobs was well known to everybody, then it is still important for a party to acknowledge it and put it out.

This is a universal problem, and it is very complex because modern economic development paradigm favours returns to capital over returns to labor. Today, do policies encourage capital investments more than labor investment, perhaps. Over the last few decades, that’s how we progressed and that has yielded results. For the first time, we are realizing that may be, that also exacerbates inequality. How do we tackle this? It will be very haughty of me to say that I have the answers. This is an issue that is confronting everybody. Does that mean tariffs, does that mean protectionism, does that mean incentivising investment in labor, it could be all or mix of this. It is very important to debate this before we jump into what we think are package solutions.

So, there is no decision on solutions?

There are various discussions about this internally.

Are the discussions more towards tariff-led, protectionist-led series of policies?

It could be all of that. The first is, let’s get back and revive private investments, let’s start creating jobs and then figure out how we tackle inequality in mix of this. It is very complex. But the idea is to flag this out. Ironically, Mr Manmohan Singh coined the term “inclusive growth” and we are saying it’s a problem.

Living In Denial

Is the Congress Party living in denial of its policy misadventures of the past? Let me read out some excerpts. Here’s one – “The starting point of the banking crisis was the unwarranted criticism of the telecom, coal and power sector policies of the UPA government that was trumpeted by the BJP”. Are you defending the discretionary allocation policies of the past? Here’s another – “Banks have been forced to write off four times more loans in the last three years than in the entire ten years of UPA”. Surely these were not loans taken in the past 3 years that went bad. Also this – “The Modi government has distorted the concept and use of Aadhaar”. The UPA implented Aadhaar without a law.

I don’t see any other president of the political party, certainly a national party, standing up in front of 15,000 people and the entire media saying we made mistakes. Rahul Gandhi did that. There was an Aadhaar bill which was introduced, then it went to standing committee which was headed by Yashwant Sinha, which was rejected.

Remember, there is one fundamental difference between UPA 2 and this government. This government has an absolute Lok Sabha majority which is very critical for policy making, there are lots of things we cannot do and we couldn’t have the Aadhaar bill passed which was the truth.

We don’t have majority, and we don’t have the support for this, but we are very clear that there are all these benefits from public service delivery perspective of Aadhaar. So, it was a conscious choice that we made. It is unfair to say that we made no attempts to pass it in legislature.

You have littered this document with tax terrorism to describe the impact of GST on small and medium size businesses. That phrase was coined to describe the UPA government.

If a phrase applies, then it applies everywhere. An economy is a continuing engine. We can’t draw a line and say this was like this. It is pretentious to say that all these loans went bad, only because it was given at that time. My argument is that it is rare to get perfect alignment of stars like low global prices, absolute majority in Lok Sabha, and a robust world economy.

Let’s say the economy did perform as it was supposed to have and all these projects became viable and loans became performing. Was that a possibility? I am pointing out that lets not try and say that it became sour because it was in a certain period. Why we aren’t acknowledging that the economy didn’t perform?

I challenge you to point to one other president of a political party in this country which can stand up and say that we made a mistake.

You have said that the banking sector is in deep crises due to the undermining of institutional integrity of regulatory institutions and failure of regulatory oversight. Is there something here which you think needs to be augmented, and hasn’t been?

Clearly. Everyone has acknowledged that there has been a regulatory oversight. It is ownership and regulations, and lot of these things have been mixed in the banking sector for sure.

Are you suggesting something that needs to change here, specifically?

We must separate ownership from regulation. Regulatory and investigative agencies have to be separate from the executive. I think it is a very classical 101 in political science.

Do we need a big new idea?

It is not about new idea or old idea. It is not about earth shatteringly innovative. It is about introspection, acknowledgement of issues, and saying that these are the challenges that we acknowledge and that exist, and hence our economic policy doctrine will be focused on addressing these challenges.

I know you are eager to know what those policy measures would be. But this is not a manifesto. I assure you that there will be clear and specific solutions which will be laid out in the manifesto.

There were a series of speeches on the economic resolution. The second speaker who spoke was a senior member from the Congress Party from Kerala who was a former minister. He stood up and said that should we indulge in the self-criticism of the 1991 reforms. That is the Congress party.

There are all sorts of ideas and people coming from all different schools and ideologies. He said that publicly which is not a secret, and he was allowed to express his views. Finally, we said that we will not indulge in self criticism further. But that’s a point of view.

Published on 21 March, 2018 in Bloomberg Quint